Beef cattle industry expected to end 2017 in the black, consumer prices decline

The beef cattle business is logging a decent year as 2017 winds to a close amid herd expansion, solid U.S. demand and expanded exports. But the profits are less than in recent years.

John Nalivka, president of Sterling Marketing, projects cash profit margins for cow-calf producers in 2017 will average $136 per cow, down $46 per head last year. He said 2017, while in the black, was nowhere as good as 2015 for cow-calf operators who garnered $438 per cow on average.

Feedyards are expected to see average profits of $228 per head this year, much better than the average loss of $4.25 per head in 2016. Packers like Tyson Foods enjoyed an average profit margin of $118 per head in 2017, up from $114 last year, according to Nalivka.

Also this week the USDA’s projections for 2018 production was lowered on the pace of cattle slaughter and lighter carcass weights which began in the fourth quarter and are expected to continue into early next year. Despite a market rally early this fall, cattle prices flattened and feeder prices were level much of November around $119 per hundredweight. Analysts expect sellers can hope for prices around the mid-$120 per hundredweight moving into the spring of 2018.

Nalivka said on the demand side of the equation growing supplies could soften prices and erode margins. Darrell Peel, an extension livestock specialist at Oklahoma State University, estimates the 2018 beef cow herd will be up 1.5% to 2% over the January 2017 figure.

“Expansion rates above or below this level are possible, through expansion above 2.5% is difficult to reconcile with current numbers,” he said. “The annual cattle inventory numbers in the January report are eagerly anticipated, not only to confirm what happened to the beef cow herd in 2017 but for indications of what lies ahead in 2018.”

The export markets are hugely important to helping balance supply and demand and through October beef exports abroad totaled 1.038 million metric tons, up 9% year-over-year. The exports carried a value of $5.93 billion, up 16% from a year ago, and slightly ahead of the record value pace set in 2014.

The U.S. Meat Export Federation reports beef exports accounted for 13% of total production in October, the highest since July but down from 13.9% last year. For January through October, beef exports accounted for 12.8% of total production, down from 13.3% last year. October beef export value averaged $301.88 per head of fed slaughter, up 12% from a year ago and the highest since December 2016. January through October export value averaged $279.85 per head, up 10%.

Cattle prices forecast for 2017 were recently lowered to a range of $116 to $119 per hundredweight, in the USDA report. They peg 2018 cattle prices to be unchanged in the range between $113 and $120 per hundredweight.

Consumers continue to enjoy better beef pricing which is helping fuel demand. USDA reports the all ground beef retail price averaged $5.65 per pound through October, below the $5.73 per pound in 2016, and $6.03 per pound in 2015. Boneless choice sirloin steaks averaged $8.04 per pound retail through October, compared with $8.50 per pound last year.